SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-010699
HUBCO, INC.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2405746
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 MacArthur Blvd
Mahwah, New Jersey 07430
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(Address of principal executive office) (Zip Code)
(201)-236-2600
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(Registrant's telephone number, including area code)
Not Applicable
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Former name, former address, and formal fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
13,110,947 shares, no par value, outstanding as of July 31, 1995.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994......................... 1
Consolidated Statements of Income
Six Months Ended June 30, 1995
and June 30, 1994........................................... 2
Consolidated Statements of Income
Three Months Ended June 30, 1995
and June 30, 1994........................................... 3
Consolidated Statements of Cash Flows
Six Months ended June 30, 1995
and June 30, 1994........................................... 4
Asset Quality Schedule--Quarterly Recaps ..................... 5
S.E.C. Guide 3--Item IV
Summary of loan loss experience............................. 6
Notes to Consolidated Financial Statements.................... 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 9-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................. 15
Signatures.................................................... 16
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Page 1
<TABLE>
<CAPTION>
HUBCO, Inc. and Subsidiaries
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30 December 31
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks ............................................................... $ 69,453 $ 71,687
Investment Securities (Note--B)
Available for Sale, at market value
(amortized cost of $97,625 and $115,062
in 1995 and 1994, respectively) ................................................... 99,180 112,006
Held to maturity, at amortized cost (market value
of $512,866 and $537,090 for 1995 and 1994, respectively) ......................... 511,100 562,567
---------- ----------
610,280 674,573
Federal funds sold and securities purchased under agreements to resell ................ 17,900 23,640
Loans:
Real estate-mortgage ................................................................ 442,717 485,660
Commercial and financial ............................................................ 233,683 215,036
Consumer credit ..................................................................... 128,227 110,160
Credit Card ......................................................................... 55,765 67,577
---------- ---------
860,392 878,433
Less:
Allowance for possible loan losses .................................................. 16,718 16,559
Deferred loan fees .................................................................. 1,377 1,149
Unearned income ..................................................................... 3,485 3,037
---------- ----------
NET LOANS ......................................................................... 838,812 857,688
---------- ----------
Property and equipment, net ........................................................... 33,638 35,330
Other real estate ..................................................................... 5,828 6,550
Accrued interest receivable ........................................................... 15,255 16,072
Other assets .......................................................................... 20,275 24,285
---------- ----------
TOTAL ASSETS ....................................................................... $1,611,441 $1,709,825
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ............................................................... $ 269,505 $ 278,753
Interest bearing ................................................................... 1,147,465 1,212,839
---------- ----------
TOTAL DEPOSITS ..................................................................... 1,416,970 1,491,592
---------- ----------
Federal funds purchased and securities sold under agreements to repurchase ............ 37,550 48,964
Treasury tax and loan note ............................................................ 3,806 2,865
Accrued taxes and other liabilities ................................................... 6,405 25,504
---------- ----------
TOTAL LIABILITIES .................................................................. 1,464,731 1,568,925
---------- ----------
Subordinated Debt ..................................................................... 25,000 25,000
Stockholders' equity:
Preferred Stock-Series A, no par value; authorized
3,300,000 shares, issued 797,811 shares; outstanding 77,191 shares (1995)
and 788,811 shares (1994) ......................................................... 2,141 19,147
Common stock, no par value, issued and outstanding
13,121,237 shares (1995); issued
13,145,059 shares and outstanding 12,355,391 shares (1994) ........................ 23,330 23,372
Capital in excess of par .............................................................. 50,014 50,058
Retained earnings ..................................................................... 47,335 39,199
Treasury stock, at cost, 0 and 179,826 common shares
in 1995 and 1994, respectively, and 12,000 and 9,000 Preferred
shares in 1995 and 1994 respectively ................................................ (261) (11,723)
Unearned Compensation-Restricted stock awards ......................................... (974) (1,266)
Unrealized gain/(loss) on investment securities
available for sale, net of income taxes ............................................. 125 (2,887)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ......................................................... 121,710 115,900
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ............................................. $1,611,441 $1,709,825
========== ==========
See notes to consolidated financial statements
</TABLE>
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Page 2
<TABLE>
<CAPTION>
HUBCO, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
SIX MONTHS ENDED JUNE 30
---------------------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest & fees on loans:
Taxable ............................................................................. $40,354 $27,181
Tax exempt .......................................................................... 153 195
------- -------
40,507 27,376
------- -------
Interest & dividends on securities:
Taxable ............................................................................. 19,372 16,802
Tax exempt .......................................................................... 571 854
------- -------
19,943 17,656
------- -------
Interest on federal funds sold ....................................................... 574 571
------- -------
TOTAL INTEREST INCOME ............................................................ 61,024 45,603
------- -------
INTEREST EXPENSE
Interest on deposits:
Savings deposits .................................................................... 9,453 7,927
Time deposits ....................................................................... 8,272 4,600
Interest on borrowings ............................................................... 2,461 1,317
------- -------
TOTAL INTEREST EXPENSE ........................................................... 20,186 13,844
------- -------
NET INTEREST INCOME .............................................................. 40,838 31,759
------- -------
Provision for possible loan losses ................................................... 2,100 1,115
------- -------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES ..................... 38,738 30,644
NON-INTEREST INCOME
Trust department income ............................................................. 329 309
Service charges on deposit accounts ................................................. 4,657 4,162
Securities gains/(losses) ........................................................... 564 (85)
Other income ........................................................................ 2,594 1,117
------- -------
8,144 5,503
------- -------
46,882 36,147
------- -------
OPERATING EXPENSES
Salaries ........................................................................... 11,497 8,463
Pension and other employee benefits ................................................ 4,849 3,673
Occupancy expense of property ...................................................... 3,205 2,540
Equipment expense .................................................................. 2,141 1,130
Other operating expenses ........................................................... 10,099 6,916
------- -------
31,791 22,722
------- -------
INCOME BEFORE INCOME TAXES ...................................................... 15,091 13,425
INCOME TAXES--Federal ........................................................... 2,785 3,871
State ............................................................. 902 1,091
------- -------
3,687 4,962
------- -------
NET INCOME ...................................................................... $11,404 $ 8,463
======= =======
INCOME PER COMMON SHARE:
Primary ........................................................................... $ .88 $ .68
Fully Diluted ..................................................................... $ .85 $ .68
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common ............................................................................ 12,371 12,506
Preferred ......................................................................... 683 --
See notes to consolidated financial statements
</TABLE>
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<TABLE>
<CAPTION>
Page 3
HUBCO, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
THREE MONTHS ENDED JUNE 30
----------------------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest & fees on loans:
Taxable ............................................................................. $20,418 $13,790
Tax exempt .......................................................................... 75 140
------- -------
20,493 13,930
------- -------
Interest & dividends on securities:
Taxable ............................................................................. 9,501 8,773
Tax exempt .......................................................................... 253 471
------- -------
9,754 9,244
------- -------
Interest on federal funds sold ....................................................... 254 328
------- -------
TOTAL INTEREST INCOME ............................................................ 30,501 23,502
------- -------
INTEREST EXPENSE
Interest on deposits:
Savings deposits .................................................................... 4,624 4,257
Time deposits ....................................................................... 4,449 2,277
Interest on borrowings .............................................................. 1,121 643
------- -------
TOTAL INTEREST EXPENSE ........................................................... 10,194 7,177
------- -------
NET INTEREST INCOME .............................................................. 20,307 16,325
------- -------
Provision for possible loan losses ................................................... 1,050 515
------- -------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES ..................... 19,257 15,810
NON-INTEREST INCOME
Trust department income ............................................................. 181 136
Service charges on deposit accounts ................................................. 2,321 2,170
Securities losses ................................................................... (25) (86)
Other income ........................................................................ 1,484 570
------- -------
3,961 2,790
------- -------
23,218 18,600
------- -------
OPERATING EXPENSES
Salaries ........................................................................... 6,059 4,260
Pension and other employee benefits ................................................ 2,569 1,794
Occupancy expense of property ...................................................... 2,208 1,300
Equipment expense .................................................................. 1,034 576
Other operating expenses ........................................................... 4,610 3,911
------- -------
16,480 11,841
------- -------
INCOME BEFORE INCOME TAXES ....................................................... 6,738 6,759
INCOME TAXES--Federal ............................................................ 319 1,870
State .............................................................. 495 569
------- -------
814 2,439
------- -------
NET INCOME $ 5,924 $ 4,320
======= =======
INCOME PER COMMON SHARE:
Primary ........................................................................... $ .46 $ .35
Fully Diluted ..................................................................... $ .45 $ .35
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common ............................................................................ 12,323 12,483
Preferred ......................................................................... 624 --
See notes to consolidated financial statements
</TABLE>
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Page 4
<TABLE>
<CAPTION>
HUBCO, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30
---------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................................. $ 11,404 $ 8,463
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses ................................. 2,100 1,115
Provision for depreciation and amortization ........................ 3,263 1,392
Amortization of security premiums .................................. 1,429 1,209
Accretion of security discount ..................................... (566) (212)
Realized security (gains)/losses ................................... (565) 85
Loss on sale of fixed assets ....................................... 225 --
Deferred income taxes .............................................. 640 649
Decrease (increase) in interest receivable ........................... 817 (2,193)
Increase in interest payable ......................................... 76 741
(Decrease) increase in accrued taxes and other
liabilities ........................................................ (19,088) 184
Decrease (increase) in other assets .................................. 2,638 (7,173)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................... 2,373 4,260
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities ....................................... 12,266 8,544
Proceeds from maturities of securities .................................. 59,748 73,374
Proceeds from sale of equipment ......................................... 1,533 --
Net cash acquired from acquisitions ..................................... -- 110,257
Net cash paid for acquisitions .......................................... -- (6,180)
Net decrease in loans ................................................... 16,776 8,801
Purchase of securities .................................................. (6,881) (217,193)
Purchases of premises and equipment ..................................... (188) (6,057)
Increase in other real estate ........................................... 722 1,400
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ........... 83,976 (27,054)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts .................................... (82,287) 12,852
Net increase (decrease) in certificates
of deposit ........................................................... 7,665 (3,728)
Net decrease in federal funds
purchased and securities sold under
agreements to repurchase ............................................. (11,414) (11,147)
Subordinated Debt -- 25,000
Cash dividends .......................................................... (3,502) (1,558)
Purchase of treasury stock .............................................. (4,785) (5,298)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ........... (94,323) 16,121
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ......................... (7,974) (6,673)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............. 95,327 97,523
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................... $ 87,353 $ 90,850
======== ========
</TABLE>
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Page 5
HUBCO, Inc. and Subsidiaries
ASSET QUALITY SCHEDULE--QUARTERLY RECAP
(In Thousands)
<TABLE>
<CAPTION>
6/30/95 3/31/94 12/31/94 9/30/94
------- ------- -------- -------
<S> <C> <C> <C> <C>
Non-Accruing Loans:
Commercial ................................................ $ 7,442 $ 7,509 $ 8,176 $ 8,187
Real Estate ............................................... 8,681 9,284 10,665 15,040
Consumer Loans ............................................ 647 439 615 605
Credit Cards .............................................. 448 398 -- --
------- ------- ------- -------
Total Non-Accruing Loans ................................ 17,218 17,630 19,456 23,832
------- ------- ------- -------
Renegotiated Loans ........................................... 1,359 538 669 855
------- ------- ------- -------
Total Non-Performing Loans .............................. 18,577 18,168 20,125 24,687
Other Real Estate ............................................ 5,828 6,222 6,550 5,963
------- ------- ------- -------
Total Non-Performing Assets ............................. $24,405 $24,390 $26,675 $30,650
======= ======= ======= =======
Non-Accruing Loans to Total
Loans, Net ................................................ 2.01% 2.06% 2.23% 2.97%
Non-Performing Loans to Total Loans, Net ..................... 2.17 2.12 2.30 3.07
Non-Performing Assets to Total Assets ........................ 1.51 1.45 1.56 1.78
Non-Performing Assets to Total Loans, Net Plus
Other Real Estate ......................................... 2.83 2.83 3.03 3.79
Loans Past Due 90 Days or More and Accruing:
Commercial ................................................ $ 467 $ 799 $ 1,100 $ 1,307
Real Estate ............................................... 3,121 3,153 1,573 3,075
Installment ............................................... 177 169 51 190
Credit Cards .............................................. 383 458 644 --
------- ------- ------- -------
Total .................................................. $ 4,148 $ 4,579 $ 3,368 $ 4,572
======= ======= ======= =======
</TABLE>
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Page 6
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
Summary of Activity in the Allowance,
Broken Down by Loan Category
-------------------------------------
Six Months Year
Ended Ended
6/30/95 12/31/94
-------- --------
(In Thousands of Dollars)
<S> <C> <C>
Amount of Loans Outstanding ................................................ $860,392 $878,433
======== ========
Daily Average Amount of Loans .............................................. $856,986 $744,257
======== ========
Balance of Allowance for Possible Loan Losses at Beginning of Period ....... $ 16,559 $ 14,109
Loans Charged Off:
Commercial, Financial, and Agricultural .................................. (1,624) (653)
Real Estate--Mortgage .................................................... (271) (5,833)
Installment .............................................................. (369) (321)
Credit Card .............................................................. (559) (3)
--------- ---------
Total Loans Charged Off ............................................... (2,823) (6,810)
--------- ---------
Recoveries of Loans Previously Charged Off:
Commercial, Financial, and Agricultural .................................. 85 660
Real Estate--Mortgage .................................................... 259 129
Installment .............................................................. 83 204
Credit Card .............................................................. 455 --
-------- --------
Total Recoveries ...................................................... 882 993
-------- --------
Net Loans Charged Off ...................................................... (1,941) (5,817)
Addition to Allowance Charged to Operations ................................ 2,100 3,550
Additions Acquired Through Acquisitions .................................... -- 4,717
-------- --------
Balance at End of Period ................................................... $ 16,718 $ 16,559
======== ========
Ratio of Net Loans Charged-Off During Period to Average Loans Outstanding .. .45% .78%
</TABLE>
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Page 7
HUBCO, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1995
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form l0-Q and Rule l0-0l of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles to complete
financial statements. In the opinion of management, the information presented
includes all adjustments, consisting of normal recurring accruals, considered
necessary to a fair presentation, in all material respects, of the interim
period results. The results of operations for periods of less than a year are
not necessarily indicative of results for the full year.
Effective April 5, 1995, the Company acquired Jefferson National Bank and
effective June 30, 1995, the Company acquired Urban National Bank. These
acquisitions have been accounted for under the pooling-of-interests method of
accounting and, accordingly, all prior period financial statements have been
restated.
NOTE B--SECURITIES
The amortized cost and estimated market value of securities are summarized as
follows:
<TABLE>
<CAPTION>
June 30, 1995
-----------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ----------------------------- Market
Cost Gains (Losses) Value
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Government ........................... $ 57,382 $ 340 ($ 195) $ 57,527
U.S. Government agencies .................. 30,304 211 (424) 30,091
Equity securities ......................... 9,939 1,662 (39) 11,562
-------- ------ -------- --------
$ 97,625 $2,213 ($ 658) $ 99,180
======== ====== ======== ========
June 30, 1995
-----------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ----------------------------- Market
Cost Gains (Losses) Value
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Government ........................... $211,258 $2,647 ($ 339) $213,566
U.S. Government agencies .................. 275,547 2,501 (3,176) 274,872
State and political subdivisions .......... 19,417 122 (101) 19,438
Other securities .......................... 4,878 150 (18) 5,010
-------- ------ ------- --------
$511,100 $5,420 ($3,634) $512,886
======== ====== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
Page 8
December 31, 1994
-----------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ----------------------------- Market
Cost Gains (Losses) Value
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Government ........................... $ 51,455 $ 11 ($ 935) $ 50,531
U.S. Government Agencies .................. 53,480 -- (3,412) 50,068
States and Political Subdivisions ......... 580 -- (2) 578
Other debt securities ..................... 1,000 -- -- 1,000
Equity securities ......................... 8,547 1,405 (123) 9,829
-------- ------- ------- --------
$115,062 $ 1,416 ($4,472) $112,006
======== ======= ======== ========
December 31, 1994
-----------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ----------------------------- Market
Cost Gains (Losses) Value
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Government ........................... $246,476 $ 4 ($ 6,764) $239,716
U.S. Government Agencies .................. 276,147 $ 35 (18,002) 258,180
States and Political Subdivisions ......... 33,986 58 (631) 33,413
Other securities .......................... 5,958 20 (197) 5,781
-------- ------- -------- --------
$562,567 $ 117 $(25,594) $537,090
======== ======= ======== ========
</TABLE>
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Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This financial review presents management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
Company's Consolidated Financial Statements and the accompanying notes. Unless
otherwise noted, all dollar amounts, other than per share information, are
presented in thousands.
As of April 5, 1995, the Company acquired Jefferson National Bank ("Jefferson"),
which added four branches in Passaic County to Hudson United Bank. Under the
terms of the acquisition agreement, Jefferson's stockholders received
approximately 2.698 shares of HUBCO common stock in exchange for each common
share of Jefferson, resulting in the issuance of 609,842 shares of HUBCO stock.
The acquisition was accounted for as a pooling-of-interests.
On June 30, 1995, the Company merged Urban National Bank ("Urban") into Hudson
United Bank. Under the terms of the merger agreement, Urban shareholders
received 2.170 shares of HUBCO common stock in exchange for each Urban
share, resulting in the issuance of 2,135,175 shares of HUBCO stock. The
transaction was accounted for as a pooling-of-interests.
In 1994, the Company consummated three acquisitions. On May 6, 1994, the
Company, through Hudson United Bank, acquired four branches, deposits and
certain assets of Polifly Federal Savings and Loan Association ("Polifly") from
the Resolution Trust Corporation ("RTC"). The purchase price for the acquisition
was $6.2 million. On July 1, 1994, the Company consummated its merger with
Washington Bancorp, Inc. ("Washington") for a combination of cash and
convertible preferred stock with an aggregate value of approximately $40.5
million. On December 7, 1994, the Bank acquired Shoppers Charge Accounts Co.
("Shoppers") for approximately $16.3 million in cash.
The balance sheet and income statement comparisons are influenced by the
transactions mentioned above. On October 13, 1994, HUBCO announced that its
Board of Directors had approved a 3 for 2 stock split payable January 14, 1995
to record holders of HUBCO common stock as of January 3, 1995. As a result, all
share data has been retroactively restated. In addition, prior period financial
statements have been restated for the effect of the Jefferson and Urban
acquisitions described above.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1995 and June 30, 1994
For the three month period ended June 30, 1995, the Company earned net income of
$5,924, or $.45 per share on a fully diluted basis, compared to $4,320, or $.35
per share, for the same period in 1994. The increase in earnings of $1,604, or
37.1%, is the result of a non-recurring decrease in income taxes of $1,625, or
66.6%. Income before income taxes decreased by $21, or 0.3%, compared
to the same period in 1994.
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Page 10
Interest income of $30,501 for the quarter ended June 30, 1995 represents an
increase of $6,999, or 29.8%, from the $23,502 reported for the same period in
1994. The increase is due primarily to a $6,563, or 47.1%, increase in interest
and fees on loans. The loan portfolio for the second quarter of 1995 averaged
$851,896, compared to average outstanding of $656,740 for the second quarter of
1994. The increase in volume of $195,156, or 29.7%, generated approximately
two-thirds, or $4,137, of the increased loan earnings and an increase in yield
contributed the remainder. The increased average loan volume resulted from the
loans acquired from Washington and the credit card receivables from Shoppers.
Overall, average earning assets increased to $1,501,984 during the second
quarter of 1995 from $1,341,789 for the same period in 1994, an increase of
$160,195, or 11.9%. The yield on average earning assets on a fully taxable
equivalent basis increased 107 basis points from 7.10% for the second quarter of
1994 to 8.17% for the second quarter of 1995.
Interest expense for the three month period ended June 30, 1995 increased by
$3,017, or 42.0%, over the comparable period in 1994. Specifically, interest on
deposits increased by $2,539, or 38.9%, while interest on borrowings increased
by $478, or 74.3%. Deposit interest increased as a result of an increase of
$128,567, or 12.5%, in average interest bearing deposits generated by the
acquired Polifly and Washington deposits coupled with an increase in average
deposit rates of 59 basis points, from 2.54% for the second quarter of 1994 to
3.13% for the second quarter of 1995. Interest on borrowings increased as a
result of the repricing of the Company's interest rate swap, as well as an
increase in the volume of borrowings based on liquidity needs.
The provision for possible loan losses increased by $535, or 103.9%, from $515
for the three month period ended June 30, 1994, to $1,050 for the second quarter
of 1995. During 1995, the provision has been maintained to allow flexibility in
disposing of problem loans and other real estate including those arising from
recent acquisitions.
Non-interest income increased to $3,961 for the three month period ended June
30, 1995 from $2,790 for the same period in 1994, an increase of $1,171, or
42.0%. Service charges on deposit accounts increased by $151, or 7.0%, as a
result of the increased deposit volume generated by the 1994 acquisitions.
Other income increased by $914, or 160.4%, as a result of the fees generated by
Shoppers ($826) and by the Company's recently established International
Department ($122).
Operating expenses increased by $4,639, or 39.2%, from $11,841 for the three
month period ended June 30, 1994 to $16,480 for the second quarter in 1995. More
than one-half of the total increase is attributable to an increase of $2,574, or
55.5%, in salaries and benefits arising primarily from the additional staff
required to run the Polifly and Washington branches and the Shoppers operation.
This also includes severance and phase-out expenses for staff which were not
retained. Occupancy expense increased by $908, or 69.8%, as a result of the
additional twelve branches acquired in 1994, the Shoppers' rental expense under
an old lease agreement which expires 12/31/95 and will not be renewed, and the
costs associated with operating the Company's new corporate headquarters while
continuing to maintain the old headquarters building. Equipment expense
increased
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Page 11
by $458, or 79.5%, due primarily to the equipment needs of the additional
branches, the Shoppers computer expenses and the Company's new Imaged item
processing system. Other operating expenses increased from $3,911 for the second
quarter of 1994 to $4,610 for the same period in 1995. The increase of $699 or
17.9%, is primarily attributable to an increase in FDIC insurance expense
arising from the additional deposits acquired from Polifly and Washington, and
from increased intangible asset amortization resulting from the Polifly core
deposit and the Washington goodwill.
Income taxes (state and federal) for the three month period ended June 30, 1995,
decreased by $1,625, or 66.6% from the comparable period in 1994. The tax
reduction is the result of the reversal of tax reserves no longer deemed
necessary primarily as a result of an I.R.S. settlement covering the tax years
of 1991, 1992 and 1993, which was finalized during the second quarter of 1995.
The reversal included credits to the provision for federal income taxes totaling
$1,966.
Six Months Ended June 30, 1995 and June 30, 1994
For the six month period ended June 30, 1995, the Company earned net income of
$11,404, or $.85 per share on a fully diluted basis compared to $8,463, or $.68
per share for the same period in 1994. The increase in earnings of $2,941, or
34.8%, is primarily attributable to improvements in net interest income and
non-interest income and to a non-recurring reduction in federal income taxes.
Net income before taxes increased by $1,666, or 12.4%, from $13,425 for the
six-month period ended June 30, 1994 to $15,091 for the comparable period in
1995.
Interest income for the six-month period ended June 30, 1995, increased by
$15,421, or 33.8%, over the comparable period in 1994. The increase is due to an
increase in average earning assets of $196,880, or 14.9%, coupled with an
increase in yield from 6.97% (FTE) in 1994 to 8.07% (FTE) in 1995. The increased
volume is primarily a result of the loans and securities acquired in the
Washington and Shoppers transactions. The increased yield results from increased
market rates, most notably prime based loans.
Interest expense for the six-month period ended June 30, 1995, increased to
$20,186 from $13,844 for the same period in 1994, an increase of $6,342, or
45.8%. Of the total increase, $5,198 represents additional deposit interest and
results from an increase of $182,567, or 18.3%, in average interest bearing
deposits coupled with an increase of 50 basis points in average rate, from 2.51%
in 1994 to 3.01%, in 1995. The increased volume is a result of the deposits
acquired in the Polifly and Washington transactions. The increase of $1,144, or
86.9% in interest on borrowings is primarily attributable to the increase in
volume of fed funds purchased and reverse repurchase agreements, which were
entered into to meet short-term liquidity needs, and to the repricing of the
Company's interest rate swap.
Overall, the net interest margin increased from 4.88% for the six-month period
ended June 30, 1994 to 5.42% for the same period in 1995 as a result of changes
in market rates and the related impact on the new mix of assets and liabilities
created by the acquired institutions.
<PAGE>
Page 12
The provision for possible loan losses was increased by $985, or 88.3%, as a
result of managements' analysis of the allowance level and its adequacy,
specifically in regard to the non-performing loans acquired.
Non-interest income increased to $8,144 for the six-month period ended June 30,
1995 from $5,503 for the comparable period in 1994. The increase of $2,641, or
48.0% includes a securities gain of $564 in 1995, compared to a loss of $85 in
1994. Excluding securities transactions, the 1995 increase is $1,992, or 35.6%,
and results primarily from increased deposit service charges of $495 generated
by the additional deposit volume and from increases in fees on Shoppers credit
card services and international services of $1,485 and $159, respectively.
Operating expenses increased by $9,069, or 40.0%, from $22,722 for the six-month
period in 1994 to $31,791 in 1995. Salaries and benefits increased by $4,210, or
34.7%, as a result of the additional personnel required due to growth through
acquisitions, annual salary increases of approximately 3.0%, additional payroll
taxes and employer 401k contributions, and an increase in the Company's
performance bonus accrual due to higher earnings. Occupancy expense increased by
$665, or 26.2%, as a result of the twelve additional branches, the Shoppers'
lease agreement and the carrying of two headquarters buildings until the Union
City facility is sold or disposed of. Equipment expense increased by $1,011, or
89.5%, as a result of the additional equipment needs of the acquired
institutions, Shoppers' computer expenses and the Imaged item processing
system. Other operating expenses increased by $3,183, or 46.0%, primarily as a
result of acquisition-related expenses including increases in consulting fees
($200), FDIC insurance ($493), and amortization of core deposit ($463), and
goodwill ($472). Costs associated with the Jefferson and Urban acquisitions,
including printing, legal, accounting, mailing, conversion and consulting fees,
totaled approximately $848. Other increases include outside service fees
operating supplies and telephone and postage expense, all of which also arose
primarily from the additional costs associated with operating a larger
franchise.
Income taxes (state and federal) for the six-month period ended June 30, 1995,
decreased by $1,275, or 25.7%, over the comparable period in 1994. An increase
to the provision based on an increase of $1,666 in income before income taxes
was more than offset by credits to the provision totalling $2,076, which,
as mentioned above, resulted primarily from reserve reversals following an
I.R.S. settlement.
<PAGE>
Page 13
FINANCIAL CONDITION
Total assets at June 30, 1995 decreased by $98,384, or 5.8%, from December 31,
1994. The decrease is primarily attributable to a decrease in deposits of
$74,622, or 5.0%, and to the cash payment of $16,275, in settlement of the
Shoppers acquisition, which was a note payable at December 31, 1994.
The Company's Loan Portfolio decreased by $18,041, or 2.1% from $878,433 at
December 31, 1994 to $860,392 at June 30, 1995. The decrease is primarily the
result of a seasonal runoff in the credit card portfolio and payoffs on
residential mortgage loans which are being reinvested in the commercial and
consumer portfolios.
Total non-performing loans, which include non-accruing and renegotiated loans,
decreased by $1,548, or 7.7%, primarily as a result of collection efforts. Other
real estate decreased by $722, or 11.0%, as the result of sales of foreclosed
properties in excess of new owned real estate.
Overall, asset quality ratios at June 30, 1995 improved compared with the ratios
at December 31, 1994. As there was a decrease in net loans, the ratio
improvements were generated by the reductions in non-performing assets (See
Asset Quality Schedule on Page 5).
The allowance for possible loan losses increased from $16,559 at December 31,
1994 to $16,718 at June 30, 1995. The increase of $159, or 1.0%, results from a
six-month provision of $2,100 which was largely offset by $1,941 in net
charge-offs.
The securities portfolio decreased by $64,293, or 9.5%, from $674,573 at
December 31, 1994 to $610,280 at June 30, 1995. The decrease is the result of
the sale of available for sale securities of approximately $12,266 and
maturities which exceeded purchases by $52,027. At June 30, 1995 and December
31, 1994, approximately 16.3% and 16.6%, respectively, of the portfolio was
categorized as "Available for Sale".
Property and equipment decreased by $1,692, or 4.8% primarily as a result of the
sale of two branch properties and the Company's former data processing facility.
Accrued interest receivable decreased by $817, or 5.1%, as a result of the
decreases in the loan and securities portfolios.
Other assets decreased from $24,285 at December 31, 1994 to $20,275 at June 30,
1995, a decrease of $4,010, or 16.5%. The decrease is primarily attributable to
decreases in suspense items and accounts receivable of $1,500 and $700,
respectively, and to the amortization of intangible assets and prepaid expenses
of $1,090 and $691, respectively.
Total deposits at June 30, 1995 decreased by $74,622, or 5.0%, from $1,491,592
at December 31, 1994 to $1,416,970 at June 30, 1995. The deposit outflow was
caused primarily by cyclical changes in commercial deposit levels and by
increased competition from mutual funds and other financial institutions.
<PAGE>
Page 14
The ratio of non-interest bearing deposits to total deposits increased to 19.0%
at June 30, 1995 from 18.7% at December 31, 1994.
Federal Funds purchased and securities sold under agreement to repurchase
decreased by $11,414, or 23.3%, as short-term liquidity needs eased and the
Company repaid borrowings.
Other liabilities decreased $19,099, or 74.9%, from $25,504 at December 31, 1994
to $6,405 at June 30, 1995. The decrease is primarily attributable to the
repayment of a $16,275 note payable arising from the December closing of the
Shoppers acquisition, for which cash payment took place in January 1995. In
addition, accrued expenses were reduced by approximately $1,900 as obligations
were paid.
At the end of the reporting period, the Company is not aware of any current
recommendations by the regulatory authorities which would have a material
adverse effect on the Company's capital resources or operations. The capital
ratios for HUBCO, Inc. at June 30, 1995, and the minimum regulatory requirements
for such capital ratios are as follows:
Ratios at 1995 Minimum
June 30, 1995 Requirements*
------------- -------------
Tier I Risk-Based Capital Ratio ......... 12.89% 6.0%
Total Risk-Based Capital Ratio .......... 17.00% 10.0%
Leverage Capital Ratio .................. 7.00% 5.0%
-------------------------
* For qualification as a well-capitalized institution.
<PAGE>
Page 15
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Agreement and Plan of Merger, dated February 14, 1995, among Urban
National Bank, HUBCO, Inc. and Hudson United Bank. (Incorporated by reference
from the Company's Current Report on Form 8-K filed February 23, 1995.)
(3)(i) The Certificate of Incorporation of HUBCO, Inc. filed May 5, 1982
and amendments to the Certificate of Incorporation, dated November 22, 1983,
January 30, 1984, January 11, 1985, July 17, 1986, March 25, 1987, April 26,
1991, November 26, 1991, March 25, 1992, May 17, 1993 and January 4, 1995.
(Incorporated by reference from the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, Exhibit (3i).)
(3)(ii) The By-Laws of HUBCO, Inc. (Incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, Exhibit (3ii).)
(b) Reports on Form 8-K
(1) On April 19, 1995, HUBCO filed a Form 8-K pursuant to Item 5 to report
the consummation on April 5, 1995 of the merger of Jefferson National Bank into
Hudson United Bank with Jefferson's year-end audited financial statements
attached. This Form 8-K was amended by Form 8-K/A on April 25, 1995 to include
the Consent of Arthur Andersen LLP dated April 21, 1995.
(2) On April 21, 1995, HUBCO filed a Form 8-K pursuant to Item 5 to report
that on April 18, 1995 HUBCO issued a press release reporting its earnings for
the first quarter of 1995.
(3) On July 3, 1995, HUBCO filed a Form 8-K pursuant to Item 5 to report
the consummation on June 30, 1995 of the merger of Urban National Bank into
Hudson United Bank.
<PAGE>
Page 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUBCO, Inc.
August 14, 1995 /s/ KENNETH T. NEILSON
------------------------------- -----------------------------------
Date Kenneth T. Neilson
President & Chief Executive Officer
August 14, 1995 /s/ CHRISTINA L. MAIER
------------------------------- ----------------------
Date Christina L. Maier
Assistant Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 69,453
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<TRADING-ASSETS> 0
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<DEPOSITS> 1,416,970
<SHORT-TERM> 37,550
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2,141
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